I prefer the latter definition for two reasons: a) in- and de-flation are the Latin words for monetary expansion or contraction.

Going down the route of attributing the word inflation to rising prices regardless of cause (scarcity, becoming a collector's item, fashion etc., or even perceived future scarcity, a thing that drives today's oil prices a lot) leads to intractable errors and circular reasoning. The second reason is: inflation in the sense of expanding the money supply can, but need not, and certainly not immediately, raise prices.

Equally, deflation can, but need not necessarily, lower prices, at least both never work in unison and never across the board.

But the other way 'round, that raising prices cause (or "are") inflation, certainly makes no scientific sense – how can scarce oil be a monetary phenomenon? Certainly no one argues the monetary base hasn't increased manifold since the late 1960s, driving the dollar off the gold standard after which the rise became totally unfettered and is now in a near-vertical trajectory (see St. Louis Fed's charts and statistics).

This MUST eventually lead to hyperinflation like it did in the German Weimar Republic towards the end of 1923 or in Zimbabwe today. Another matter is if "deflation" in the sense of FALLING prices tends to make people postpone their buying decisions (and hence bring the economy to a standstill). I flatly deny it, there seems not only to be no historic proof, with the exception of allegations, such as "had the Fed not let deflation happen, THEN the Great Depression could have been averted" etc. – that's not proof, as we have no access to the "parallel universe" where just that countermeasure was taken to find out if the allegetion were true.

But we have access to anecdotal evidence to the contrary: the computer industry has not deterred anyone from buying their product by constantly lowering prices AND even raising quality and functionality with each new model. Well, these are even TWO incentives to wait ... forever (the same goes for automobiles – buyers should again wait forever since they can only become better!).

But it never happened, in fact computer and related sales as a rule have always increased year over year. Of course some theorists will always argue why the computer industry is different from the yacht industry or bread manufacturing. That's an easy escape route that defies any scientific reasoning, let the moon be of cheese.

However, the exact same "theorists" lump yachts, bread, cheese and computers together in their macro-economic "aggregates" – they can't have it both ways though. Similarly, in a housing market downturn, people keep buying all the time and if there is a certain reluctance it can more easily be attributed to general scarcity of credit and people feeling insecure rather than them waiting for "the best deal ever".

But there is another psychological moment at play: if you know Dutch auctions, where the auctioner doesn't bid UP the price but begins with the highest price and every second goes down at a predefined interval until a hand goes up and the deal is closed, this is anecdotal "proof" that especially in an environment where prices fall people are tempted to buy at the EARLIEST possible moment before someone else takes advantage of the perceivedly low price!

So price "deflation", if anything, spurs sales! If bidders formed a cartel to wait as a crowd, granted, that could let prices fall forever. Instead they are independent competitors not knowing each others' next moves!
But you know what: IF prices were falling all the time, but sellers were convinced they would eventually rise again, the danger would come from the exact opposite faction: SELLERs would then be loth to sell, not buyers to buy! Equally, if the argument about "deflationary procrastination" held any water and if we do not resort to polylogism and e.g. racial differentiation arguing sellers are a different breed of people than buyers (anyhow, every seller in one market is a net buyer in another!) then if "DEflation" makes people wait to buy, INflation must make sellers wait to sell, as they'd be better off "selling tomorrow" rather than now!

Either way an economy would grind to a complete halt while when prices are stable people would just sit on their hands to wait for future price moves in their predilected direction. All this is ivory tower pseudo-economics. Since under a stable money regime which was the rule under the gold standard, price "deflation" was an economic law since productivity gains would always, all other things being equal, drive down prices, and as people thrived under such circumstances I have yet to see unrefutable proof of how stable money bases with ensuing falling goods prices (as a tendency) would harm an economy rather than benefit it while money inflation always is harmful and even the worst inflators at the helm of central banks wouldn't dispute it.

So this "fear of deflation" is just a ruse by central banks to keep inflating the money supply. Deflation does not keep people from spending – they always spend what's necessary to carry on in life.

If money is NOT "spent" on consumption but saved it becomes credit to someone who invests it in capital goods etc. Thus it is again being spent this time to e.g. build a future factory.

That saved money never lies completely idle (supposing it is not stuffed under a mattress). And the recent defaults have even had an INflationary effect since the money extended as credit is still with those who received it in payments; only if the debtors had NOT defaulted would the credit eventually be retired.

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